Office supply audit by schools was limited

San Diego Unified checked charges against catalogs, not for lowest price

The San Diego Unified School District spent more than $17.3 million on office supplies between 2007 and 2010 under the contract that’s the subject of a whistle-blower lawsuit unsealed last week.

The suit alleges that Office Depot overcharged governments across the nation under the agreement, negotiated by Los Angeles County and available to other governments through a co-op.

The company denies it overcharged anyone, says it was proactive in addressing customers’ concerns, and says many of the claims are distortions of the contract’s terms and conditions being perpetuated by a disgruntled former employee.

Following audits or investigations in other states, the company has paid millions of dollars in refunds and settlements.

Several California cities and school districts, including the city of Los Angeles, have joined the whistle-blower case, which could entitle them to a larger portion of any settlement or judgment.

Even though San Diego Unified was invited to do so, the district has not signed on as a participant in the lawsuit, which was filed in Los Angeles Superior Court in March 2009.

Phil Stover, a deputy superintendent, said the district did an audit in 2010. It examined whether Office Depot charged the prices listed in catalogs prescribed under the contract.

Because district officials didn’t have electronic copies of the catalogs, the auditor depended on Office Depot to tell the district what it should have been charged.

Using that methodology, the district’s audit found $4,677 in overcharges.

Audits elsewhere in the nation have gone a step further by examining other issues, such as whether the company failed to meet lowest-price guarantees.

Earlier this month, Maricopa County, Ariz., claimed Office Depot overcharged it up to $5.4 million. Earlier this year, Detroit Public Schools alleged it was overcharged $1 million and received a settlement for an undisclosed amount. And in 2011, Dallas County accused the company of overcharging $1.8 million.

The Watchdog has been asking San Diego Unified officials about the Office Depot contract and the limited scope of their audit since March. The U-T even sought the data that would be required to do a more extensive audit, but the district declined the request.

As recently as two weeks ago, Stover said in an emailed statement after the Arizona audit was released, “the district is confident that our Office Depot purchases through the (national) agreement provided competitive pricing and quality service for our schools, staff and students.”

Stover said the district had already spent countless hours reviewing the contract and that it was not set up to conduct the type of review Maricopa County did. Officials there said they spent 1,800 hours over two years to review of the contract.

“We do not have the available resources like Maricopa County has to dedicate to an internal review,” Stover said.

Stover also pointed out that San Diego Unified purchases many products that county governments do not, and that it received additional discounts through the contract due to being a large purchaser. That could mean the district would be less susceptible to the overcharging claims than Maricopa County was.

Now that the whistle-blower lawsuit has been unsealed, San Diego Unified is evaluating the potential risks and costs of joining the lawsuit.

“We have not yet determined whether our district is similarly situated to the plaintiffs based on the new allegations,” Stover said.

Office Depot and the co-op marketed the national contract as containing “best government pricing.” The contract also contained a clause requiring Office Depot to immediately offer lower prices through the contract if it sells products “under similar quantity or delivery conditions” at those lower prices to other California agencies.

In response to Maricopa County’s audit, Office Depot said, “the auditor’s report rehashes old claims, originally made by a disgruntled former employee, that are based on inaccurate legal interpretations of Office Depot’s former contracts...”

“These very claims were considered and expressly rejected by the Florida Attorney General’s Office back in 2010, after it conducted a two-year investigation into the same allegations,” Office Depot said. “Maricopa County was not overcharged; the prices it paid were the prices called for by the contract it joined.”

The former employee Office Depot mentioned in its statement is Fort Myers, Fla., resident David Sherwin. Sherwin was fired from his job as a senior salesman on government accounts in 2008 for sending a profane and threatening email to the company’s executives, according to Sherwin and the company.

Sherwin, who is also a former government auditor, is the whistle-blower in the Los Angeles lawsuit, and could receive a large percentage of any settlement or judgment resulting from the case. Neither he nor his attorney responded to a request for comment.

First Assistant Dallas County Auditor Diana Grafton said officials there were not expecting to find any issues with the national contract when they set out to audit it. After the audit eventually turned up $1.8 million in alleged overcharges, Grafton said agencies should absolutely conduct a full audit.

“I would say yes,” Grafton said. “Based on the financial and the state of the economy for taxpayers — and that is what auditors are supposed to be doing is protecting taxpayer dollars — I would think that they should do their due diligence.”

San Diego Unified continues to purchase products from Office Depot through a new national contract with a different co-op, spending $1.9 million for the six months ending in September.

Stover said the district has also adopted other office supply contracts with different businesses to ensure it has access to a variety of prices, and encourages its employees to find the contract that offers the best price.

“Our only goal is to get the best product in a timely manner at the best price,” Stover said in a March email. “We have created options to accomplish that.”